PSUs Might Raise Motor Insurance Premium By 40%

Thread Starter #1
Feb 10, 2012
The finance ministry has asked state-owned general insurers to devise new marketing strategies and raise premiums to minimise their third party motor insurance losses, which could cause a hefty increase in motor insurance costs.

The losses of the state-run general insurance companies added up to Rs 6,134 crore during 2011-12, a significant chunk of it coming from motor insurance portfolio. The ministry has asked state-run insurers to re-price their comprehensive motor insurance policies so that the combined ratio including claims and commission does not exceed 100%, or the premium covers the cost of providing the policy.

"With the winding up of third-party motor pool, we expect the losses to go up further and hence we want insurers to be more prudent," said a finance ministry official. The repricing is expected to raise the premium by at least 30-40 %.

The finance ministry had earlier directed general insurance firms to restructure their loss-making portfolio in fire and health segment . The ministry wants the insurers to improve their claim management, cut down on expenses and avoid pricing warfare among state-run firms.

The general insurers will also explore the possibility of issuing separate policies for own damage and third-party liability. Own damage premium is the amount of premium that an insurer gets to provide cover above the mandatory third-party cover.

"All these measures will have a direct impact on premium rates. We expect them to increase by around 40% or more," said a chairman of a state run insurer. As per the new directive, insurers cannot pay more that 35% of the own damage premium under discounts, commission or brokerage and other incidentals such as infrastructure expenses.

The circular also states that no brokerage or commission will be paid by insurers for vehicles of more than 10 years old. Insurers have been also told not to deal with dealers and manufacturers in bulk motor business.

The circular states that companies which provide such business with heavy claim ratio should be discouraged unless the own damage rates are revised periodically.

PSUs may raise motor insurance premiums by 40 per cent - The Economic Times

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